Rupee opens flat at 95.55 against US dollar

The Indian rupee opened flat at 95.55 against the US dollar on Thursday, 9 July, as renewed hostilities between the US and Iran reignited concerns over a spike in crude oil prices.

Brent crude, after surging more than 8% over the previous two sessions, climbed another 1% during Asian trading after the US military launched fresh strikes on Iran, prompting retaliatory attacks by Iran on Kuwait and Bahrain.

The impact of rising crude prices on the rupee had eased in recent weeks, but the latest escalation in the Middle East has brought those concerns back into focus. For India, a major crude oil importer, higher oil prices could widen the current account deficit, stoke inflationary pressures, and weigh on economic growth.

Elevated crude prices could also dampen foreign portfolio inflows, which had only recently started to recover.

The renewed oil price rally has already unsettled Indian financial markets. The benchmark 10-year government bond yield jumped 7 basis points on Wednesday, marking its biggest single-session rise in more than three months, while the benchmark equity indices tumbled around 2%, recording their sharpest one-day decline in over three months.

Brent crude could climb towards $100

According to market experts, Brent crude has surged more than 5% to its highest level in two weeks as traders priced in the risk of supply disruptions from the Middle East.

They noted that crude oil has now found strong support around the $70 per barrel mark, a level seen before the conflict escalated. If geopolitical tensions persist and supply concerns intensify, Brent crude could gradually move towards the $95-$100 per barrel range.

Rupee under pressure as oil risk premium returns

Experts said higher crude prices are particularly significant for India, which imports the bulk of its oil requirements. The renewed spike in oil prices has quickly translated into pressure on the domestic currency.

The Indian rupee weakened during the session, with the USD/INR pair climbing to around 95.60, its highest level this month, as markets priced in a fresh geopolitical risk premium.

Dollar takes a back seat as oil dominates sentiment

Experts observed that, unlike previous geopolitical episodes, the US dollar was not the primary driver of market moves. The Dollar Index remained relatively subdued as investors focused instead on the inflationary impact of rising crude oil prices and potential supply disruptions.

However, expectations of further monetary tightening in the US strengthened, with the probability of a September Federal Reserve rate hike rising to around 69% from 58% a day earlier.

Fed minutes signal policy uncertainty

According to experts, the minutes of the US Federal Reserve's June policy meeting showed that policymakers remain divided over the future path of interest rates, suggesting that uncertainty around US monetary policy is likely to persist in the coming months.

Rupee Outlook

According to Amit Pabari, MD, Research Team, CR Forex Advisors, as highlighted in our reports over the past few days, USDINR was expected to move back towards the 95.50–95.80 region, and we are now almost there. Going forward, the environment remains uncertain, with geopolitical developments and oil prices likely to keep volatility elevated.

“The 95.10–95.20 zone is expected to act as a strong support area, and as long as it holds, the path towards 96.00 and higher levels remains open,” said Pabari.

Disclaimer: This story is for educational purposes only. The views and recommendations above are those of individual analysts or broking companies, not Mint. We advise investors to check with certified experts before making any investment decisions.